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Raleigh Department Store uses the conventional retail method for the year ended

ID: 2553731 • Letter: R

Question

Raleigh Department Store uses the conventional retail method for the year ended December 31, 2016. Available information follows:

The inventory at January 1, 2016, had a retail value of $53,000 and a cost of $36,930 based on the conventional retail method.

Transactions during 2016 were as follows:


Sales to employees are recorded net of discounts.

The retail value of the December 31, 2017, inventory was $61,880, the cost-to-retail percentage for 2017 under the LIFO retail method was 70%, and the appropriate price index was 104% of the January 1, 2017, price level.

The retail value of the December 31, 2018, inventory was $53,500, the cost-to-retail percentage for 2018 under the LIFO retail method was 69%, and the appropriate price index was 107% of the January 1, 2017, price level.


Required:
1. Estimate ending inventory for 2016 using the conventional retail method.
2. Estimate ending inventory for 2016 assuming Raleigh Department Store used the LIFO retail method.
3. Assume Raleigh Department Store adopts the dollar-value LIFO retail method on January 1, 2017. Estimating ending inventory for 2017 and 2018.

Cost Retail Gross purchases $ 327,870 $ 570,000 Purchase returns 6,700 18,000 Purchase discounts 5,800 Gross sales 568,000 Sales returns 7,500 Employee discounts 2,000 Freight-in 30,500 Net markups 33,000 Net markdowns 18,000

Explanation / Answer

Answer 1. Raleigh Department Store Conventional Retail Method Cost   Retail Beginning Inventory      36,930.00        53,000.00 Add: Purchases    327,870.00     570,000.00 Freight In      30,500.00 Less: Purchase Return      (6,700.00)     (18,000.00) Purchase Discounts      (5,800.00) Add: Net Markups        33,000.00     638,000.00 Cost-to-retail Percentage = $382,800 / $638,000 = 60% Less: Net Markdowns     (18,000.00) Goods Available for Sale    382,800.00     620,000.00 Less: Net Sales ($568,000 - $7,500) (560,500.00) Employee Discounts        (2,000.00) Estimated Ending Inventory at Retail        57,500.00 Estimated Ending Inventory at Cost - $57,500 X 60%      34,500.00 Answer 2. Raleigh Department Store LIFO Retail Method Cost   Retail Beginning Inventory      36,930.00        53,000.00 Add: Purchases    327,870.00     570,000.00 Freight In      30,500.00 Less: Purchase Return      (6,700.00)     (18,000.00) Purchase Discounts      (5,800.00) Add: Net Markups        33,000.00 Less: Net Markdowns     (18,000.00) Goods Available for Sale (Exclusive Beginning Inventory)    345,870.00     567,000.00 Goods Available for Sale (Including Beginning Inventory)    382,800.00     620,000.00 Cost-to-retail Percentage = 61% Less: Net Sales ($568,000 - $7,500) (560,500.00) Employee Discounts        (2,000.00) Estimated Ending Inventory at Retail        57,500.00 Estimated Ending Inventory at Cost: Retail Cost Beginning Inventory      53,000.00        36,930.00 Current Period's Layer        4,500.00          2,745.00 Total      57,500.00        39,675.00 Answer 3. Raleigh Department Store Dollar-Value LIFO Retail Method Ending Inventory at Year-end Retail Prices Ending Inventory at Base Year Retail Prices Inventory Layers at Base Year Retail Prices Inventory Layers Converted to Cost 2017                                      61,880.00                                59,500.00                                57,500.00                           39,675.00                                  2,000.00                              1,456.00 Total Ending Inventory at dollar-value LIFO retail Cost                           41,131.00 2018                                      53,500.00                                50,000.00                                50,000.00                           34,500.00 Total Ending Inventory at dollar-value LIFO retail Cost                           34,500.00